> Posted by Allyse McGrath and Dennis Ferenzy, Analyst at CFI and Associate Economist at IIF

Contrary to popular rhetoric, banks do not view fintechs primarily as competitors. Increasingly, they seek them as partners. This is the message of How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines—a new joint report from the Center for Financial Inclusion at Accion (CFI) and the Institute of International Finance (IIF). The report, launched today, finds that banks, insurers and payment companies don’t see fintechs as “little more than pinpricks for a banking mastodon with trillions in assets,” as The Economist colorfully described the fintech-bank relationship in 2015. The relationships between these players are more symbiotic than combative, because fintechs and mainstream financial institutions bring different strengths. With partnerships, fintechs get to scale their technology and access capital, while financial institutions gain assistance to improve product offerings, increase efficiency, and lower costs.

As it turns out, these are all goals with special relevance to low-income customers who look for products and services that are more convenient, less expensive, and higher quality. That makes financial institution-fintech partnerships a crucial strategy for meeting the financial needs of the unbanked and underbanked around the world. During our in-depth interviews with over 30 industry participants, both mainstream financial institutions and fintechs, CFI and IIF identified dozens of effective bank-fintech partnerships working at the base of the pyramid in emerging markets. The report highlights 14 of them.

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But partnering isn’t a slam dunk. Successful partnerships require financial institutions to get organized for innovation, as astute incumbents have already started to do, and that means changes to business as usual inside the large, complex systems that make up banking organizations. Banks have to create smooth pathways for identifying partners and moving partnerships through internal processes. Sometimes they must redesign their procurement decision-making, and nearly always there is a great focus on how to connect IT systems and the information they contain. While partnerships nearly always take longer than expected and require creativity and flexibility in implementation, they are mutually beneficial and enable both groups to accomplish more than they could on their own.

Dennis Ferenzy, Associate Economist at IIF, presenting at the report launch event at MetLife offices in New York

For example, though a partnership with BBVA Bancomer, fintech startup Juntos sends personalized SMS nudges to bank customers in Mexico (see figure below), helping new clients to get more out of their bank accounts and increasing account activity. A partnership between fintech Stellar and ICICI bank in India leverages a blockchain ledger and cryptocurrency to enable mobile wallet transactions. Imaginate’s virtual reality technology is being applied to MetLife India’s problem of overcrowded branches. Through partnerships like these, financial institutions gain access to new market segments; create new offerings for their existing customers; optimize data collection, analysis, and management; and deepen customer engagement and product usage. These collaborations are enabling new products and services for underserved customer segments around the world.

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In most of these examples, banks are careful to keep fintechs at a distance from core activities, especially in the early stages. They maintain relationships with their customers, they protect customer and transaction data, and they continue to use traditional ways of assessing risk. Nevertheless, by structuring partnerships carefully, banks can conduct tests that will ultimately lead to revamping even these core activities as fintechs bring in new ways to leverage data, evaluate risk, and conduct relationships with customers.

Michael Schlein, CEO of Accion, speaking at the report launch event at MetLife offices in New York

How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines takes a deep look at how financial institutions are organizing to take advantage of the great opportunity of collaborating with fintechs, and the challenges they face in doing so. The report’s in-depth case studies dive into the mechanics of 14 partnerships between fintechs and financial institutions, providing a glimpse into how the two groups are overcoming differences in style and substance to enable collaboration.

We encourage you to explore the report today and to share your own insights on the value of partnerships in financial inclusion.

Founding Sponsor

Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

Note

The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.

3 comments

Spot on! Great post. No where else is this financial inclusion symbiosis demonstrated better than in Kenya. There was resistance at first when the main fintech Safaricom disrupted the market and banks didn’t know how to react or what to expect. Today, the biggest crafted relationship is between two big banks partnering on the show stopper M-Shwari, a savings and credit vehicle. But, it is Lipa na M-pesa, a payment system that is reaching deeper and faster to the bottom of the pyramid. M-Pesa is obviously the salt without which no meal is tasty, providing the highest level of inclusion.

Last year, in the course of carrying out a financial literacy campaign pilot for rural self help groups members, I was pleasantly surprised how fast rural folks were able to grasp the idea of M-Shwari as a saving and credit mechanism, accessible through their basic phones. Of course it was embarrassing to me as a financial education teacher that it had taken such long to introduce such vital inclusion element to rural areas in Kenya. Since, for the first time, I had gotten a small donation from an European development bank for the campaign, I realized that development institutions need to awake to the potential of deeper financial inclusion in rural areas with just little funding. There is hunger to learn, and be included; I can report that.